FTNT
July 2, 2025

Fortinet: SASE Subscription Fuels Margins

We initiate coverage on FTNT at Strong Buy with $148 PT. Fortinet provides integrated and automated cybersecurity across firewall, cloud, and endpoint

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Fortinet: SASE Subscription Fuels Margins

We initiate coverage on FTNT at Strong Buy with $148 PT. Fortinet provides integrated and automated

cybersecurity across firewall, cloud, and endpoint. While consensus expects moderating firewall growth, we see an inflecting, margin-led mix shift into subscription run-rate fueled by unified platform architectures (think platformization of ServiceNow and Palo Alto with balance-sheet discipline and margin profile). SASE and AI-driven SecOps adoption supports a 5–7% Street beat on EPS to FY26E; compounding ARR at 24% and buybacks reveal hidden value of $0.06 per share per year. Execution crystallizes as standalone operating margin floors north of 33%, and its dominant firewall franchise (>50% share of global new deployments) is essential to durable ARR growth and high-ARPU upsells into SDN. A 50× FY26E P/E is demonstrable DD earnings plus a margin of safety, given multiples remain meaningfully below history despite capital returns and $1.9 bn of FCF per year. While a capex pause or tariffs could create inflections, modeled upside is open and risk is quantified. Price to intrinsic value sets one of few asymmetric R/Rs in software as we enter what should be a multi-year product cycle.

## Recurring Revenue Shield
FTNT represents a rare inflection in AI platform expansion and can compound recurring revenues and

competitive advantage for years. The market has yet to recognize that FTNT’s secure networking franchise (>50% share of global firewall deployments) is rapidly becoming a distribution vector for deep integration of proprietary generative AI across the Security Fabric, a network-embedded platform with machine learning, GenAI models and automated response engines natively operating

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